05 Explain limitation of using capital employed to compare business size.

[MuhammadAli91191]

[KN] Measuring business size through capital employed is not always reliable as the amount invested in assets doesn’t always reflect the true scale of operations.
[APP] For instance, a small luxury hotel may purchase premium furniture and technology giving it a high capital value compared to a much larger budget hotel.
[AN] This can create a distorted view of business size as high spending doesn’t always mean higher production capacity hence smaller firms may appear larger on paper comparisons with lowcost firms become unfair which leads to investors misjudging the firms efficiency hence lead to poor financial decisions.
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[Wahaj Ashraf]

[KN]Capital employed measures the total value of assets used in a business, but it may not always be a reliable way to compare the size of different businesses.
[APP] a car manufacturing company like Toyota will have high capital employed due to expensive machinery and factories they have while a legal consultancy firm may use fewer assets but earn high profits.
[AN] This can create a false view of the businesses as high spending doesn’t always mean higher production capacity hence smaller firms may appear larger on paper comparisons with low cost firms become unfair which leading to poor financial decisions being made.
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[Wahaj Ashraf]

[KN]Capital employed measures the total value of assets used in a business, but it may not always be a reliable way to compare the size of different businesses.
[APP] a car manufacturing company like Toyota will have high capital employed due to expensive machinery and factories they have while a legal consultancy firm may use fewer assets but earn high profits.
[AN] This can create a false view of the businesses as high spending doesn’t always mean higher production capacity hence smaller firms may appear larger on paper comparisons with low cost firms become unfair which leading to poor financial decisions being made.
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[Hajra]

K: Using capital employed to compare business size can be limited because different businesses need different amounts of capital to operate.
App: For example, a software company may use little capital but earn more than a factory that has expensive machines.
An: This makes comparisons misleading, doesn’t show profit or efficiency levels, and ignores how well the capital is being used in each business.
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[Mustafa Khan]

kn]capital employed business cant be compared with a labor intensive business.
app]for example, toyota have more capital invested in their business as compared to a construction compony.
an]hence thede 2 companies cant be compared as it can give inaccurate results which can mislead the investors, because of which they might experience financial loss and will eventually increase market volatility.
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[abdurrehman waseem]

KN: Some firms operate efficiently with fewer assets due to outsourcing or leasing.
App: For example, Uber has relatively low capital employed as it doesn’t own cars.
An: Therefore, using capital employed can underestimate the size of such firms, as it doesn’t fully capture their market influence or revenue scale.
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[Aayan Zaidi]

KN: Capital employed shows how much money a business uses, but it doesn't always show how big and successful it really is.
APP: E.g 2 airlines might invest the same amount, but one could earn much more profit.
AN: So, it can be misleading because high capital doesn't always mean a bigger and better business.
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[Mamoona Hussain]

KN: Some businesses are more 'aggressive' towards buying valuable assets than others.
APP: For instance, College A has invested much more amount in their campus than College B but College B still earns more due to the better quality of their services.
AN: Due to this, the stakeholders of the business can be misled and make wrong decisions about which college to invest in, which decreases the chances of returns/rewards on investment and also limits the finance raised by College B, which could have been used to improve the campus or to offer extra curriculars. Therefore, comparing business size through capital employed can give a wrong idea of the business size.
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[AliAzeem]

[KN]It will measure the total assets of the business,so might not be accurate if the business is labour intensive.
[APP]For example a factory which relies solely on machinery for its processes will have higher capital employed than a factory which uses more labour for it's processes.
[AN]This measure gives capital intensive firms an advantage over labour intensive firms which might be misleading for labour intensive firms as they will be considered smaller which will lead to poor decisions being made.
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[Mashal Umair Niazi]

KN: It cannot be used when comparing labour and capital intensive businesses with each other
APP: Example, a large grocery store like Target versus a machine-intensive business like Mars.Inc chocolate.
AN: This is because a labour intensive business will have more employees and less machines hence less assets so it will have less capital employed, although it might be having more employees than the number of machines in the machine intensive/more capital employed business hence could be produce more output, hence earning more revenue, aswell as have more branches, and therefore being a larger business.
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[Abdul Hadi]

KN: Camital employed provides information regarding the value of assets a firm uses for its operations but does not provide an accurate comparison between the firm sizes.
APP: For example an airline company like Qatar airways may purchase premium aircrafts while another company may lease the aircraft and have the same ammount of planes in its fleet.
AN: Some businesses may appear larger just because they invest in premium and expensive things not because they are more productive, different industries require different level of capital employed as comparing an airline business with aretail chain can be misleading, Some firms with leased equipment may have less capital employed but might be working on much larger scale.
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[Dania Farooq]

[KN] Using capital employed to measure business size can sometimes be misleading bcs it depends on how much a company spends on its assets.
[APP] For eg, one airline might buy expensive new planes while another uses older but still efficient ones.
[AN] This means a business that spends more on costly assets may appear larger even if it isn’t more successful. It can also ignore how efficiently the company uses its money nd may not reflect real performance or profitability.
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[sarah_naeem]

[KN]: A limitation of using capital employed to compare business size is that it can be misleading as it only depends on how much a company spends on its assets and doesn't really show how successful a business is.
[APP]: For example, Emirates airlines invests huge amount on their airplanes while Etihad airlines also spends the same amount but Emirates gains more profit and is preferred more by customers.
[AN]: Thus, this shows it can be misleading as spending more on assets doesn't always mean the business is successful or gains more profit and hence it also doesn't show how efficient a business is leading to poor financial decisions being made which can further lead to increase in risk of bankruptcy.

[Shaliza khawaja]

business could be more labour inetnsive meaning they rely more on workers then expensive machines
for example a handmade furniture company may have much lower capital employed than a large factory, even though both have a similar number of workers.
It fails to reflect the true scale and efficiency of a business, this is also an unfair way to measure business size as sme businesses naturally require more machines than others furthermore capital employed may undervalue the true capacity and effort of labour based businesses.

[Areeba Arshad]

[KN] Capital employed measures the total value of long-term funds and assets used in a business.
[APP] For instance, one company may invest heavily in expensive equipment, while another similar-sized firm might use cheaper, more efficient tools.
[AN] This means capital employed can make asset-heavy firms appear larger, even if their output or sales are not much higher. So it doesn’t always reflect real business performance or efficiency, depending on how aggressively a firm invests in assets.